U.S. banking regulator wins revival of mortgage bond lawsuits

(Reuters) - A U.S. appeals court on Monday handed a significant victory to federal regulators suing banks over their sale of mortgage-backed securities ahead of the 2008 financial crisis, reviving a pair of lawsuits dismissed last year for being filed too late.

The 5th U.S. Circuit Court of Appeals in New Orleans said the Federal Deposit Insurance Corporation could sue Deutsche Bank AG, Goldman Sachs Group Inc and Royal Bank of Scotland Group Plc for making false statements in selling $840 million in mortgage bonds to a failed Texas bank.

The court ruled that a federal law passed in 1989 after the savings and loan crisis extended the time period that the FDIC could sue on behalf of Guaranty Bank and other banks that it took into receivership.

The banks last year convinced a judge in Austin, Texas, to dismiss the 2014 lawsuits, saying the federal law did not preempt a Texas state law that required the cases to be filed within five years of the securities’ sale in 2004 and 2005.

But Circuit Judge Carolyn Dineen King, writing for a three-judge panel, said it was “highly unlikely” Congress would have extended some but not all time limits.

The federal statute, she wrote, gave the FDIC certainty that in a financial crisis it could focus on dealing with bank failures and investigating potential claims rather than “combing through statute books” for potential time limits.

“That certainty would be wholly upset absent preemption of all limitations periods,” he wrote.

The FDIC and the banks declined comment.

The question at issue has been closely watched by banks who have been fighting off lawsuits by regulators over the mortgage bonds sold ahead of the financial crisis.

Another federal appeals court in Denver ruled in favor of the National Credit Union Administration in 2014 in saying its own mortgage-bond lawsuits were timely filed.

The issue is expected to be key to an appeal by Nomura Holdings Inc and RBS of a Manhattan federal judge’s order that they pay $806 million for false statements made in selling mortgage bonds to Fannie Mae and Freddie Mac.

Those banks argue the Federal Housing Finance Agency, the conservator for Fannie and Freddie, similarly waited too long to file a lawsuit.

Meanwhile, a U.S. appeals court in New York is expected to hear arguments on Oct. 8 on whether to revive another lawsuit by the FDIC against 7 banks that was dismissed for being too late.